No, The Sony Kobo Deal is Not a Model for Barnes & Noble’s Nook

I’m sure you’ve read the news today about Sony and Kobo. The former is bailing on the US ebook market, and as one last kindness to their customers they’ve convinced Kobo to take them in, while the latter is going to gain a few thousand more customers.

This deal is generating a lot of debate and punditry, including a new article over on Forbes. Jeremy Greenfield thinks it would be a good idea for B&N to follow in Sony’s footsteps and simply walk away. While at first I thought it sounded like a horrible idea, it’s actually not all that implausible:

Sony and Kobo are both thought to be very minor players in the U.S. ebook market. I doubt the move will add too many readers to Kobo’s rolls. The company wouldn’t tell me how many accounts are being transferred but in its press release announcing the move, it claimed the same 18 million worldwide users as it has claimed in other recent announcements.

This could be a good model for Nook, which many in the publishing industry expect to be shuttered or sold before the end of 2014. Nook is Barnes & Noble’s device and ebook business and it has been faltering badly for nearly two years. While it still brings in over $100 million in revenue every quarter, it loses much more than that and revenues have been shrinking rather than growing.

That’s a terrible idea and it is also wildly improbable, but as much as I might hate it I am afraid it might actually happen.

And just to be clear, I’m not referring to the possibility that B&N might sell out (I wish); I want to examine the Forbes proposal that B&N might simply walk away.

The thing is, Sony didn’t sell out; they threw in the towel. They bailed on the US ebook market because the revenue probably didn’t meet their expectations, and on their way out the door they asked Kobo take in the soon to be orphan customers (Sony’s last friendly act of customer service).

The US Sony Reader Store isn’t going to be transferred to new ownership; it’s going to be dismantled. I’m sure no one thinks that would be a good solution for B&N’s problems with the Nook, but they could still do it.

All it would take would be for B&N to perform a cold cost benefit analysis and decide that the ongoing hemorrhage of money outweighed the negative publicity. I would have reached that conclusion months ago, so it’s not impossible for B&N to reach the same conclusion in the near future.

And here’s how the result of that analysis might play out.

B&N’s first step would be to fire nearly everyone working at Nook Media. Not counting the people who have left over the past 6 months, that’s somewhere around 600 people, most of whom work in either Palo Alto or NYC. This would take the development teams that B&N spent years and a ton of money putting together and cast them to the wind, completely throwing away all that work, but if B&N is walking away from ebooks I don’t think they would care.

Next, B&N would have to find another company to take over the customer accounts. (Actually, this would come first, but I wanted to be melodramatic about the firings.) This could be Kobo, but Apple and Amazon are out. The latter would never get regulatory approval, while the former wouldn’t deign to support customers that didn’t own Apple hardware. And I doubt Kobo would be able to take over the accounts; I think Amazon would do their best to block regulatory approval for a B&N-Kobo deal.

As a result, that leaves just one company as the most likely candidate to take over the charred remains of the Nook Store: Microsoft. Remember, MS already owns a chuck of Nook Media, and the international Nook Store appears to operate under Microsoft’s auspices (it’s Windows 8 only). And that makes MS the best candidate to keep the Nook customer accounts from going in the shredder.

Update: A reader has pointed out that MS can be multi-platform when it suits them; they already have iOS and Android apps for Xbox Music and other apps. Thanks, Commons!

MS would probably abandon the Android apps, the iPad and iPhone apps, the OSX app, and maybe even the Windows apps, but they would at least keep the Windows 8 app going. And MS would keep many readers from suffering the same fate as Fictionwise’s international customers (left in the cold when B&N shut Fictionwise down).

Sure, almost no one would be able to read their ebooks because they didn’t run Windows 8, but at least their investment wouldn’t be completely gone.

But I’m not sure that would matter much on the larger scheme of things, because if B&N simply abandoned their Nook customers to MS I think most of those customers would flee for a safer harbor.

They would go running to Amazon.

Sure, they would keep reading their existing ebooks (assuming they still had access), but future purchases would be made in the Kindle Store – where it’s safe to assume that the ebooks will not vanish in the night. After all, many people might hate Amazon but who would you trust more, Amazon or MS?

In short, if B&N followed in Sony’s footsteps Amazon would come out a huge winner. And for that reason alone we should all be hoping that B&N doesn’t simply throw in the towel.

Nate Hoffelder

Nate Hoffelder is the founder and editor of The Digital Reader. He has been blogging about indie authors since 2010 while learning new tech skills weekly. He fixes author sites, and shares what he learns on The Digital Reader's blog. In his spare time, he fosters dogs for A Forever Home, a local rescue group.

Agreed, MSFT has no problems being cross platform when it suits them. I don’t think they want to be in the eBook business that badly, but if they did they would likely support every platform. Windows might get special features first, but they would happily integrate nook with SkyDrive and slap it on every platform imo.

The problem with this scenario is B&N gets absolutely nothing out of their Nook investment. If they really want to bail out, the best way is to put it up for auction and let the new owner do the downsizing. That way they take in some money and avoid the costs of firing all those people, in publicity, karmic, and financial terms.

For all its problems, Nook is not worthless; it still commands around ten percent US ebook market share, a not-insignificant indie publishing operstion, a large installed base of eink readers (a few milion of which might be willing to upgrade to a new model in the next year or so), and toeholds in the UK and other international markets. Plus, they own outright a viable social-DRM system and associated IP worth a few tens of millions by itself.

Nook might not be worth anywhere near as much as it might’ve brought in two years ago, but it could still bring in a low 9 figure sale price from the right buyer.

So no, shutting Nook down and giving away the customer base is a non-starter. They just need to suck it up and sell it to somebody who can reassure customers that buying Nook ebooks is safe to bring back defectors. And do it fast; the more they delay, the lower the sale price.

I don’t disagree, but I’m also not the one who originally proposed the idea. I wanted to explore the idea fully because I found it interesting and too show improbable it was. And while you say B&N wouldn’t walk away from Nook media, they did simply abandon Fictionwise’s international customers.

On the B&N side, only the US regulators matter – their international expansion is effectively nonexistent. On the Kobo side, even post-Sony, they’re not a significant US player. So why would US regulators care, especially if B&N keeps the physical stores?

It might not happen because Microsoft wanted Nook Media’s carcass badly enough, but I don’t think there’s anything Amazon could do about it.

P.S. Beyond Microsoft, there’s always Google. Confused as they are, they did manage to get the Play Store on all those Nooks, so…

I would love to see this happen even though I never was a gamer. The idea of XBooX carrying comics and magazines (bring back Life and Look) on the home bigscreen HDTV (and upcoming UHDTV) would make me seriously consider buying XBox one for that alone.

But currently MSFT is in shambles itself with the new leadership. So I can see the company being very cautious about new deals like this until the internal aspects of reorganization are finished and Nadella and Gates settle into their new roles.

Shambles?
Hardly.
The guy they chose was the top choice of experienced MS observers since day one. And a well-liked insider.
Their finances are stable, setting records, even; the devices side is growing and grabbing market; and their common platform strategy has them years ahead of the competition.
They are pushing forward faster than the market wants to but they are moving forward and making progress.
Shambles?
That would be Nintendo.
Or the non-Playstation side of Sony.
But MS is doing fine; just check their last quarterly statement.

I don’t see Microsoft taking a long-term proprietary interest in Nook; I do see them interested in a partnership (which is what they own abt 20% of right now). Consolidating with Kobo is the only avenue that makes sense now that Sony is out of the game. Nook brings the US onside; Kobo brings the rest of the world and, so far, a dedicated owner with a good team in place that has been plodding away building a substantial brand and business.

B&N could do worse than spin off Nook Media to Kobo, with Microsoft remaining as junior partner, and refocus on its retail and/or college divisions. Since Sony, Nook and Kobo ebooks are all rooted in epub, it shouldn’t be difficult for existing customers to make a future transition as hardware options continue to evolve. The cross-platform Android, iOS and Windows 8 apps mean that proprietary hardware can be orphaned in favour of one standard (Kobo or Nook, take your choice).

Sony claims 18 million worldwide users–yea, sure. I am probably considered one of them, since I got a email letter from them with the announcement, addressing me as “Dear Reader Store Customer”.

I never bought one of their ebooks and I never registered a credit card. I just happen to download their PC reader and registered my email address, years ago. I found it to be trash with many problems. I removed it and I was especially annoyed by that “secret” key sequence to get it completely removed from my PC. In addition, I never bought their overpriced reader and accessories.

I ended up buying a Kindle. One reason was that their PC reader is outstanding which is my first way of evaluating a ebook reader product. It had extensive dictionary support Also, it allowed the sort of ones own books with the purchased ones, not like the that Nook nonsense that will not sort your own books with ones purchased. Also, Kobe PC reader is another piece of junk, that I reviewed, which keeps me away from buying their ereader.

It is just a big bunch of fluff from a failing company which time has passed by.

Why ever would B&N give up their ebook store? B&N is a book business. Sony was not. Sony was losing wads of money on something that wasn’t core to anything they were doing, and they weren’t doing a good job with it anyway. If B&N gave up on the ebook market, they would be giving up on the future of books, in which case they might as well just file for bankruptcy now, because in the long run, paper books are dead weight.

B&N’s ebook store itself is fine. The nook simple touch is okay, though as all eInk readers, it doesn’t live up to anyone’s hopes due to the lousy screen refresh time. The glow is an embarrassment compared to the Paperwhite. And the Nook HD…well, they put in underpowered hardware and then gave the home screen a bunch of complicated animations, so yes, it’s going to feel clumsy, which was stupid of them. If they had gone with a less flashy interface with less animation, and didn’t try an app carousel, the device would really be pretty decent. It reads books, it gets email, it has an appstore, and it ties kobo for the cheapest tablet. So…it’s a fixable problem. Get better hardware under the software, or simplify the software to match the hardware.

In any case, B&N’s book sales are still very strong. I’m not worried about them at this point, unless we all write them off!

Nook in itself is not a money pit.
Smaller companies have managed to make money off ebooks (or at least did so until the conspiracy too away their competitive tools).
What makes Nook a money pit is B&N policies and priorities.
Under different, competent management it should do fine.

Very likely.
Remember how B&N was licensing access to the ebookstore early on to a couple of tablet vendors. (Amazon, too.)
If Nook had stuck with that model instead of me-tooing Kindle, possibly licensing to some of the hardware-only vendors, we’d be looking at a different world.
It would’ve meant going up against Adobe instead of Amazon, true, but hindsight says it would’ve been safer.

Actually, I was thinking that they could have avoided hardware entirely, but you’re right in that they could have stuck with E-ink Nooks and kept signing tablet makers as partners (and ereader makers, for that matter). That would have kept a foot in the water without creating a huge expense (and the eventual loss when the Nook HD flopped).

By focusing on ereaders B&N could have kept producing the single best Nook on the market rather than fragmenting their attention between disparate models. They could have saved themselves the effort of developing the poorly supported LCD devices which was B&N’s eventual downfall.

Nate said: [P]oorly supported LCD devices […]
Okay, which LCD devices, and how were they poorly supported? As far as I’m aware, LCD’s going great guns on smartphones like all three of my Samsung Galaxies, for example.

Apps. Music. Videos.
Tablets are content consumption devices and the lockdown on the Nook Tablets limited the content users could consume on them without hacking. That limited their value. It took them years to begin addressing the issue and by then it was too late for that particular product line.

Barnes & Noble originally conceived of the Nook Color etc as walled gardens where B&N would control access to and profit from ebooks, apps, and other content. Unfortunately for B&N, they never got enough apps in their app store to make the idea work. And they didn’t even launch a video store until very late in 2012, by which point it was too late.

By the middle of 2012 B&N was competing against the Kindle Fire and real Android tablets which cost the same and did more than B&N’s locked down devices. The holiday 2012 fiasco was inevitable by that point, barring some brilliant marketing move by B&N.

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